What should the nominal exchange rate

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Reference no: EM13214885

Suppose that an automobile costs $30,000 in the United States and 25,000 Euros in France. Further suppose that the exchange rate is .8 (one US dollar = .8 Euros).

a. What is the real exchange rate?
b. In which country is the automobile less expensive?
c. Do your answers suggest that the US will have a trade surplus or a trade deficit with France?
d. Does you answer to c suggest that US citizens will be borrowing money from France or
lending money to France?
e. Given the prices of the automobiles in France and the United States, what should the nominal exchange rate be in order to have purchasing power parity.

Reference no: EM13214885

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